Inflation Regime Research Articles

Inflation-threshold effect on current account imbalance in Tunisia: new evidence from a nonlinear approach

PurposeIn this article, we assess the impact of inflation on the current account balance in the case of Tunisia, covering the period 1976–2022.Design/methodology/approachThe study utilizes a threshold regression approach proposed by Hansen (2001) in a bid to identify inflation threshold values.FindingsThe results show two inflation threshold values (3.87% and 8.41%), which determine three inflation regimes in the case of Tunisia. In lower inflation regimes, inflation has a positive and statistically significant impact on the current account balance. However, in higher inflation regimes, where inflation rates exceed 3.87%, there is a negative and statistically significant correlation with the current account balance, resulting in a deficit.Originality/valueThe research suggests the need for a new policy approach that considers these threshold levels to address high inflation rates, which currently stand at approximately 11%, and aims to restore them to the targeted rate of 4%. This necessitates coordinated monetary and fiscal measures.

Interconnectedness in the FOREX market during the high inflation regime: A network analysis

Our study employs network analysis to examine the interconnectedness in the Foreign Exchange market, focusing on 18 key currencies from both advanced and emerging markets from 2017 to 2023. This analysis includes a comparative look at the impact of two major recent crises: the COVID–19 pandemic and the Russia-Ukraine war. The latter is notably marked by increased inflation and uncertainty in economic policies. During the COVID–19 pandemic, we observed a significant level of interconnectedness among the EURO and 17 other currencies, indicating a dense network. In contrast, the period of the Russia-Ukraine war revealed a tendency for countries less engaged in international trade to become more isolated, as seen by their greater distance from the network's centroid. Additionally, we developed the Systemic Contagion Index, which shows a heightened susceptibility to contagion among developed economies during both the COVID–19 and Russia-Ukraine war crises, underscoring the vulnerability of developed countries' currency networks in times of turmoil. This study provides valuable insights for investors and global businesses, offering guidance on assessing currency vulnerability and enhancing their strategies for hedging and managing risks amidst fluctuating market conditions, especially during the high inflation regime.

Neural network approach to portfolio optimization with leverage constraints: a case study on high inflation investment

Motivated by the current global high inflation scenario, we aim to discover a dynamic multi-period allocation strategy to optimally outperform a passive benchmark while adhering to a bounded leverage limit. We formulate an optimal control problem to outperform a benchmark portfolio throughout the investment horizon. To obtain strategies under the bounded leverage constraint among other realistic constraints, we propose a novel leverage-feasible neural network (LFNN) to represent the control, which converts the original constrained optimization problem into an unconstrained optimization problem that is computationally feasible with gradient descent, without dynamic programming. We establish mathematically that the LFNN approximation can yield a solution that is arbitrarily close to the solution of the original optimal control problem with bounded leverage. We further validate the performance of the LFNN empirically by deriving a closed-form solution under jump-diffusion asset price models and show that a shallow LFNN model achieves comparable results on synthetic data. In the case study, we apply the LFNN approach to a four-asset investment scenario with bootstrap-resampled asset returns from the filtered high inflation regimes. The LFNN strategy is shown to consistently outperform the passive benchmark strategy by about 200 bps (median annualized return), with a greater than 90% probability of outperforming the benchmark at the end of the investment horizon.

Cosmological collider signatures of Higgs-R2 inflation

We study the cosmological collider signatures in the Higgs-R 2 inflation model. We consider two distinct types of signals: one originating from the inflaton coupling to Standard Model fermions and gauge bosons, and another arising from the isocurvature mode interaction with the inflaton. In the former case, we determine that the signal magnitude is likely too small for detection by upcoming probes, primarily due to suppression by both the Planck scale and slow-roll parameters. However, we provide a detailed computation of the signal which could be potentially applicable to various Higgs inflation variants. For the isocurvature mode signals, we observe that the associated couplings remain unsuppressed when the isocurvature mode is relatively light or comparable to the inflationary scale. In this case, we study the Higgs-R 2 inflation parameter space that corresponds to the quasi-single-field inflation regime and find that the signal strength could be as large as |f NL| > 1, making Higgs-R 2 inflation a viable candidate for observation by future 21-cm surveys.

Inflation regimes and hyperinflation: a Post-Keynesian/structuralist typology

Abstract The article proposes a typology of inflation regimes based on the Post-Keynesian and structuralist literature. We identify three separate regimes: the low, moderate and high inflation regimes. Hyperinflation is also defined and described. Each regime presents different characteristics. We identify the key role played by the distributive conflict between workers and capitalists in all the regimes, the role played by the indexation of wages on domestic prices in the moderate and high inflation regimes and the specific roles played by the widespread indexation on a short-term basis in the high inflation regime. Hyperinflation is explained by self-fulfilling prophecies about exchange rate variations and by the rejection of the domestic currency.

Inflation-Economic Growth Nexus in Nigeria: New Evidence on Threshold Effects

Purpose: The aim of this study is to analyze the influence of inflation on the economic growth of Nigeria from 1990 to 2021. Specifically, it aims to identify a threshold, if it exists, at which the impact of inflation on economic growth begins to shift.
 Methodology: To assess the inflation threshold and its impact on economic growth, this study employed a novel method, the endogenous sample-splitting and threshold model developed by Hansen (2000).
 Findings: The study reveals a non-linear relationship between inflation and economic growth in Nigeria, with a single inflation threshold of 12.88%. When inflation is below this threshold, it positively impacts economic growth, while exceeding it negatively impacts economic growth. Furthermore, higher trade openness negatively affects economic growth, and population growth positively impacts growth across all inflation regimes. Investments contribute to economic growth in the linear model, but their influence is statistically insignificant across the threshold regimes. Financial deepening impedes growth above the inflation threshold.
 Unique Contribution to Theory, Practice and Policy: The study expands upon the current body of research on estimating the inflation threshold for Nigeria using the Hansen (2000) sample splitting technique. To our knowledge, this is the first study that has adopted this technique to estimate inflation threshold for Nigeria. The Hansen (2000) threshold technique offers more flexibility in model specification. It allows for the estimation of parameters separately for different regimes, typically above and below the threshold. This flexibility can help in identifying distinct regimes, such as low and high inflation regimes, and capturing their unique characteristics. The research findings are crucial for shaping monetary policy in Nigeria, providing policymakers with valuable insights for establishing an inflation target that is in line with Nigeria's overarching goal of attaining sustained economic growth.

Exchange rate and housing affordability in OECD countries

Purpose This study aims to construct alternative models to establish the dynamic relationship between exchange rates and housing affordability by estimating both the short- and long-run relationship between exchange rates and housing affordability for 18 OECD countries from 1975Q1 to 2022Q4. After that, this study demonstrates how this nexus behaves during high and low inflation regimes and turbulent times. Design/methodology/approach This study uses the panel autoregressive distributed lag technique to examine the nexus between housing affordability to capture the distinct characteristics of the sample countries and estimate various short- and long-run dynamics in the relationship between housing affordability and exchange rate. Findings Exchange rate appreciation improves housing affordability in the short run, whereas this connection tends to dissipate in the long run. Moreover, inflation can worsen housing affordability during turbulent times, such as the global financial crisis, in both the short and long run. Ignoring these changes in the relationship between exchange rates and housing affordability during turbulent times can lead to incorrect conclusions. Originality/value To the best of the authors’ knowledge, this study is the first to examine the association between exchange rates and housing affordability by demonstrating how these variables behave in high and low inflation regimes and turbulent times.

Monetary Policy across Inflation Regimes

Monetary Policy across Inflation Regimes

Nexus between inflation and inflation expectations at the zero lower bound: A tiger by the tail

Ultra-low policy rates and zero lower bounds (ZLB) have been major issues for monetary policy formulation. In this context, we investigate the nexus between inflation and inflation expectations. Employing a non-linear ADRL framework on UK and Canadian datasets, we find significant asymmetries in the nexus among inflation and inflation expectations and their determinants, including labour market slack, output gap, oil shocks, fiscal deficit and exchange rates. Heterogeneities are explicit in the short and long-term as well as in the pre-and post-ZLB regimes. Inflation and inflation expectations become more responsive to their determinants as key policy rates approach the ZLB. There is strong evidence of persistence in inflation and inflation expectations in both regimes manifesting the importance of keeping expectations well anchored. Robustness testing with Time-Varying Parameter Vector Auto-Regression and Network Analysis confirms our findings. To mitigate the persistence of a high inflation regime, it would be vital to keep the inflation expectations well anchored.

Effective Potential for Quintessential Inflation Driven by Extrinsic Gravity

We numerically study the evolution of the extrinsic energy density in the context of an inflationary regime at the background level in a five-dimensional model using a Bayesian analysis from a dynamic nested sampler (DYNESTY) code. By means of the Nash–Greene embedding theorem, we show that the corresponding model provides an effective potential driven by the influence of extrinsic geometry. We obtain a quintessential inflation that defines a model with a potential V(ϕ)=e−α1ϕ(1−α2ϕ2), where α1 and α2 are dimensionless parameters. Using some known phenomenological parameterizations, such as Chevallier–Polarski–Linder (CPL) and Barboza–Alcaniz (BA) parameterizations, we show that the model reflects a slow-varying inflation preferring a thawing behavior, suggesting an optimistic scenario for further research on the unification of inflation with late cosmic acceleration.

Axion inflation in the strong-backreaction regime: decay of the Anber-Sorbo solution

Axion inflation coupled to Abelian gauge fields via a Chern-Simons-like term of the form ϕFF~\\documentclass[12pt]{minimal} \\usepackage{amsmath} \\usepackage{wasysym} \\usepackage{amsfonts} \\usepackage{amssymb} \\usepackage{amsbsy} \\usepackage{mathrsfs} \\usepackage{upgreek} \\setlength{\\oddsidemargin}{-69pt} \\begin{document}$$ \\phi F\\overset{\\sim }{F} $$\\end{document} represents an attractive inflationary model with a rich phenomenology, including the production of magnetic fields, black holes, gravitational waves, and the matter-antimatter asymmetry. In this work, we focus on a particular regime of axion inflation, the so-called Anber-Sorbo (AS) solution, in which the energy loss in the gauge-field production provides the dominant source of friction for the inflaton motion. We revisit the AS solution and confirm that it is unstable. Contrary to earlier numerical works that attempted to reach the AS solution starting from a regime of weak backreaction, we perform, for the first time, a numerical evolution starting directly from the regime of strong backreaction. Our analysis strongly suggests that, at least as long as one neglects spatial inhomogeneities in the inflaton field, the AS solution has no basin of attraction, not even a very small one that might have been missed in previous numerical studies. Our analysis employs an arsenal of analytical and numerical techniques, some established and some newly introduced, including (1) linear perturbation theory along the lines of ref. [1], (2) the gradient expansion formalism (GEF) developed in ref. [2], (3) a new linearized version of the GEF, and (4) the standard mode-by-mode approach in momentum space in combination with input from the GEF. All these methods yield consistent results confirming the instability of the AS solution, which renders the dynamics of axion inflation in the strong-backreaction regime even more interesting than previously believed.

Возврат мировой экономики к режиму высокой инфляции

Global inflation is one of the most significant challenges for the post-pandemic world economy. After several decades of low inflation and even elements of deflationary processes in developed countries, the danger of falling into a new period of great inflation had seemed insignificant. Dovish monetary policy during the 2009–19 period did not provoke a spike in inflation, and the slowdown of the economy during the lockdown period put the vigilance to rest. However, the COVID-19 pandemic and anti-crisis measures it triggered, the Russia-Ukraine conflict, and sanctions and anti-sanctions solidified inflationary processes around the world, both in developed and developing countries. In this article, we show the inertial nature of inflation in both the U.S. and the European Union (EU) and argue that there has been a transition to a high inflation regime, despite the decline in developed country inflation in the first quarter of 2023 mentioned in the International Monetary Fund’s (IMF) January report. Getting out of this high inflation regime will require much more serious and time-consuming measures than those used to manage inflation in the low inflation regime.

Asymmetric persistence in Turkish interest and inflation rates: New evidence from quantile unit root test with structural shifts

AbstractThis study investigates the persistence in Turkish interest and inflation rates since the implementation of inflation‐targeting monetary policy, covering the period from January 2006 to July 2022. We focus on accounting for asymmetric persistence by benefiting from recent developments in quantile unit root analysis. The findings indicate that while the conventional unit root tests support the persistence of shocks to interest rates and inflation, the quantile unit root test demonstrates an asymmetric behaviour of the persistence, implying a time‐varying structure with mean reversion (persistency) of the shocks in low (high) inflation periods. Furthermore, the half‐lives increase with the positive shocks, indicating a longer speed of adjustment in the high inflation regime. These findings provide new insights into the relationship between interest rates and inflation and have sound policy implications.

An update on adiabatic modes in cosmology and δN formalism

In this paper, we generalize the Weinberg's procedure to determine the comoving curvature perturbation ℛ to non-attractor inflationary regimes. We show that both modes of ℛ are related to a symmetry of the perturbative equations in the Newtonian gauge. As a byproduct, we clarify that adiabaticity does not generally imply constancy of ℛ, not even in the k ⟶ 0 limit. We then show that there exist non-equivalent definitions of δN that would reproduce ℛ or the uniform density curvature perturbation ζ at linear order. We have then shown that the perturbative δN definition in terms of difference between the number of e-foldings of different gauges, can be extended non-perturbatively at leading order in gradient expansion. Nevertheless, the computer friendly definition in terms of the difference of e-foldings obtained from the evolution of a local FRW Universe, respectively with perturbed and un-perturbed initial conditions, might only give information about the linear order curvature perturbations, contrary to what is stated in the literature.

Investing in Deflation, Inflation, and Stagflation Regimes

We examine asset class and factor premiums across inflationary regimes. As periods of deflation, high inflation, and especially stagflation are relatively uncommon in recent history, we use a deep sample starting in 1875. Moderate inflation scenarios provide the highest returns across asset class and factor premiums. During deflationary periods, nominal returns are low, but real returns are attractive. By contrast, real equity and bond returns are negative during a high inflation regime and especially so during times of stagflation. During these “bad times,” factor premiums are positive, which helps to offset part of the real capital losses.

Exchange rate pass-through to inflation in South Africa: is there non-linearity?

PurposeThis paper aims to examine the asymmetric effects of exchange rate shocks on inflation for a small open economy, namely South Africa, over the period 1970Q1–2020Q1.Design/methodology/approachA threshold vector autoregressive model that allows parameters to switch according to whether a threshold variable crosses an estimated threshold is employed to address the objective of this paper. The threshold value is determined endogenously using the Hansen (1996) test. Generalized impulse responses introduced by Koop et al. (1996) are used to study the effects of exchange rate shocks on inflation depending on their size, sign and timing to the inflation cycle. The authors also employed a Cholesky decomposition identification scheme to identify exchange rate shocks in the non-linear model.FindingsThe results show that there is a non-linearity effect of the exchange rate shock on inflation. In particular, the effects of 1 or 2 standard deviations of positive (appreciation) or negative (depreciation) exchange rate shock on inflation are small in the long run but a bit larger in the high inflation regime than the low inflation regime.Originality/valueThis paper contributes to the literature on the non-linear effects of exchange rate pass-through (ERPT) to inflation for Sub-Saharan African economies in general and the South African economy in particular by incorporating the size and timing of the exchange rate shocks to the inflation cycle.

Racial Unemployment Gaps and the Disparate Impact of the Inflation Tax

We study the nonlinearities present in a standard monetary labor search model modified to have two groups of workers facing exogenous differences in the job finding and separation rates. We use our setting to study the racial unemployment gap between Black and white workers in the United States. A calibrated version of the model is able to replicate the difference between the two groups both in the level and volatility of unemployment. We show that the racial unemployment gap rises during downturns, and that its reaction to shocks is state-dependent. In particular, following a negative productivity shock, when aggregate unemployment is above average the gap increases by 0.6pp more than when aggregate unemployment is below average. In terms of policy, we study the implications of different inflation regimes on the racial unemployment gap. Higher trend inflation increases both the level of the racial unemployment gap and the magnitude of its response to shocks.

Hybrid α-attractors, primordial black holes and gravitational wave backgrounds

We investigate the two-stage inflation regime in the theory of hybrid cosmological α-attractors. The spectrum of inflationary perturbations is compatible with the latest Planck/BICEP/Keck Array results, thanks to the attractor properties of the model. However, at smaller scales, it may have a very high peak of controllable width and position, leading to a copious production of primordial black holes (PBH) and generation of a stochastic background of gravitational waves (SGWB).

Constraints on the scalar-field potential in warm inflation

We quantify the degree of fine-tuning required to achieve an observationally viable period of inflation in the strongly dissipative regime of warm inflation. The ``fine-tuning'' parameter $\ensuremath{\lambda}$ is taken to be the ratio of the change in the height of the potential $\mathrm{\ensuremath{\Delta}}V$ to the change in the scalar field $(\mathrm{\ensuremath{\Delta}}\ensuremath{\phi}{)}^{4}$, i.e., the width of the potential, and therefore measures the requisite degree of flatness in the potential. The best motivated warm inflationary scenarios involve a dissipation rate of the kind $\mathrm{\ensuremath{\Gamma}}\ensuremath{\propto}{T}^{c}$ with $c\ensuremath{\ge}0$, and for all such cases, the bounds on $\ensuremath{\lambda}$ are tighter than those for standard cold inflation by at least 3 orders of magnitude. In other words, these models require an even flatter potential than standard inflation. On the other hand for the case of warm inflation with $c<0$, we find that in a strongly dissipative regime the bound on $\ensuremath{\lambda}$ can significantly weaken with respect to cold inflation. Thus, if a warm inflation model can be constructed in a strongly dissipative, negatively temperature-dependent regime, it accommodates steeper potentials otherwise ruled out in standard inflation.

Recent Developments in Warm Inflation

Warm inflation, its different particle physics model implementations, and the implications of dissipative particle production for its cosmology are reviewed. First, we briefly present the background dynamics of warm inflation and contrast it with the cold inflation picture. An exposition of the space of parameters for different well-motivated potentials, which are ruled out, or severely constrained in the cold inflation scenario, but not necessarily in warm inflation, is provided. Next, the quantum field theory aspects in realizing explicit microscopic models for warm inflation are given. This includes the derivation of dissipation coefficients relevant in warm inflation for different particle field theory models. The dynamics of cosmological perturbations in warm inflation are then described. The general expression for the curvature scalar power spectrum is shown. We then discuss in detail the relevant regimes of warm inflation, the weak and strong dissipative regimes. We also discuss the results predicted in these regimes of warm inflation and how they are confronted with the observational data. We explain how the dissipative dynamics in warm inflation can address several long-standing issues related to (post-) inflationary cosmology. This includes recent discussions concerning the so-called swampland criteria and how warm inflation can belong to the landscape of string theory.